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Economics Theme 3 Definitions > Key Words > Flashcards

Key Words Flashcards

1
Q

Allocative efficiency

A

Society produces appropriate bundle of goods and services relative to consumer preferences

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2
Q

Arbitrage

A

Two market segments are equalised by the purchase and resale of products by market participants

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3
Q

Average cost

A

Total cost divided by quantity produced

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4
Q

Backward integration

A

Firm merges with a firm that is involved in an earlier part of the production chain

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5
Q

Barrier to entry

A

Characteristic that prevents new firms from readily joining the market

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6
Q

Cartel

A

An agreement between firms on price and output with the intention of maximising joint profits

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7
Q

Competition policy

A

Set of measures designed to promote competition in markets and protect consumers to enhance efficiency of markets

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8
Q

Competitive tendering

A

Process which the public sector calls for private firms to bid for a contract to provide a good or service

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9
Q

Conglomerate merger

A

Merger between two firms operating in different markets

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10
Q

Constant returns to scale

A

Long run average cost remains constant with an increase in output

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11
Q

Contestable market

A

Existing firms only make normal profits as a higher price cannot be set without attracting entry. There are no barriers to entry and sunk costs

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12
Q

Contracting out

A

Public sector places activities in the hands of a private firm and pays for the provision

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13
Q

Corporate social responsibility

A

Actions a firm takes in order to show its commitment to behaving in the public interest

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14
Q

Cost plus pricing

A

Pricing policy whereby firms set their price by adding a mark up to average cost

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15
Q

Derived demand

A

Demand for a good or service not for its own sake but for what it produces -derived demand for labour

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16
Q

Diseconomies of scale

A

Increase in scale of production leads to higher long run average costs

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17
Q

Dominant strategy

A

Game theory where a player’s best strategy is independent of those chosen by others

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18
Q

Dynamic efficiency

A

Efficiency takes into account the effect of innovation and technical progress on productive and allocative efficiency in the long run

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19
Q

Economies of scale

A

Increase in a firms scale of production leads to production at lower long run average costs

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20
Q

Economies of scope

A

Average costs fall as a firm increase output across a range of products

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21
Q

External economies of scale

A

Economies of scale that arise from the expansion of the industry

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22
Q

Firm

A

Organisation which puts together the factors of production to produce output

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23
Q

Fixed costs

A

Costs that don’t vary when output changes

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24
Q

Forward integration

A

Firm merges with a firm that is involved in a later part of the production chain

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25
Q

Game theory

A

Modelling the strategic interaction between firms in an oligopoly

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26
Q

Horizontal integration

A

Result of a horizontal merger

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27
Q

Horizontal merger

A

Merge between two firms at the same stage of production

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28
Q

Industry long run supply curve

A

Perfect competition - the curve that is horizontal at the minimum point to the long run average cost curve

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29
Q

Internal economies of scale

A

Economies of scale that arise from the expansion of a firm

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30
Q

Law of diminishing returns

A

If a firm increases its input of one factor of production while holding inputs of the other factor fixed, it will derive diminishing marginal returns for the variable factor

31
Q

Limit price

A

Highest price a firm can set without enabling other firms to make a profit

32
Q

Long run

A

Period over which the firm can vary all its factors of production

33
Q

Marginal cost

A

Cost of producing an additional unit of output

34
Q

Marginal physical product of labour

A

Additional quantity of output produced by an additional unit of labour input

35
Q

Marginal productivity theory

A

Argue that the demand of labour depends on balancing the revenue that a firm gains from employing an additional unit of labour against the marginal cost of that unit to labour

36
Q

Marginal revenue

A

Additional revenue gained by a firm from selling an additional unit of output

37
Q

Marginal revenue product of labour

A

Additional revenue received by a firm as it increases output by using an additional unit of labour input- the marginal physical product of labour times by the marginal revenue received by the firm

38
Q

Market structure

A

Market environment within which firms operate

39
Q

Minimum efficient scale

A

Level of output at which long run average cost stops falling as output increases

40
Q

Minimum wage

A

Government set minimum wage rate below firms are not allowed to pay

41
Q

Monopolistic competition

A

Market that shares some characteristics of a monopoly and some of perfect competition

42
Q

Monopoly

A

Form of market structure where there is only one seller of a good or service

43
Q

Monopsony

A

Single buyer of a good or service

44
Q

Multinational corporation

A

Conducts operations in many countries

45
Q

N-firm concentration ration

A

Measure of the market share of the largest n firms in an industry

46
Q

Nash equilibrium

A

Each player’s chosen strategy maximises payoffs given the other persons choice - no player has the incentive to alter behaviour

47
Q

Natural monopoly

A

Substantial economies of scale forming a monopoly

48
Q

Non-pecuniary benefits

A

Benefits offered to workers by firms that are not financial in behaviour

49
Q

Normal profit

A

Profit that covers opportunity cost of capital and is just diffident to keep the firm in the market

50
Q

Oligopoly

A

There are few sellers which each firm must take account of the behaviour and likely behaviour of rival firms

51
Q

Oligopsony

A

Few buyers of the good or service

52
Q

Overt collusion

A

Firms openly work together to agree on prices in the market

53
Q

Participation rate

A

Proportion of the population of working age in employment or seeking work

54
Q

Perfect competition

A

Form of market structure that produces allocative and productive efficiency in the long run

55
Q

First degree price discrimination

A

Monopoly firm is able to charge consumers at different prices

56
Q

Predatory pricing

A

Anti competitive strategy
Firm sets price below average costs to force out rivals to achieve market dominance
Raises prices

57
Q

Price taker

A

Firm that accepts whatever price is set in the market

Supply and demand forces

58
Q

Principal agent problem

A

Conflict between the objectives of the principals and those in agents who take decisions on their behalf

59
Q

Prisoners dilemma

A

Game theory with a range of applications in oligopoly theory

60
Q

Private finance initiative

A

Funding arrangement which the private sector designs for the public sector in return for an annual payment linked to its performance on delivering that service

61
Q

Product differentiation

A

Makes products different from competitors

62
Q

Productive efficiency

A

Chosen appropriate combinations of factors of production and produce the maximum output possible from those inputs this producing at minimum long run average cost

63
Q

Public- private partnership

A

Government service or private service venture is funded

64
Q

Regulatory capture

A

Regulator of an industry comes to represent the industry’s interests rather than regulating it

65
Q

Relevant market

A

Market to be investigated under competition law

Mo major substitutes omitted but non-substitutes are included

66
Q

Satisficing

A

Managers produce satisfactory results for the firm

Do not try to maximise profits

67
Q

Short run

A

Period over which a firm is free to vary the input of one of its factors of production (labour) but faces fixed input (capital)

68
Q

Short run supply curve

A

Firm operating under perfect competition, curve given by its short run marginal cost curve above the price at which MC=SAVC for the industry, the horizontal sum of the supply curves of the individual firms

69
Q

Supernormal profits

A

Exceeding normal profits

70
Q

Tacit collusion

A

Firms refrain from competition on price but without communication or formal agreement

71
Q

Third degree price discrimination

A

Charge a group of consumers a different price for the same product
Peak times
Age groups

72
Q

Variable costs

A

Costs that vary with the level of output

73
Q

Vertical merger

A

Firms in the same industry but at different stages of production

74
Q

X-inefficiency

A

Firms not operating at minimum cost perhaps because of organisational slack

Economics Theme 3 Definitions (1 decks)

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